Bulls continue to amaze, but for how long?

The recent rally has more legs than I anticipated. However, the four day rally has pushed the indices near an extreme level so the probability of a shorter-term reprieve increases that much more. Of course, with the Fed release tomorrow who knowsa what to expect. Certainly, the market looks stretched at this point, but over the short-term we could easily see a push into “very overboguht” territory if the bulls like the report tomorrow.

I still think there are quite a few short-term bearish indicators rearing their ugly heads and I can’t help but be alarmed. The problem tomorrows swings will be wild and I do not plan on gambling as to which side will win. Patience, patience, patience. One thing is for certain the market will always offer more opportunities and riding it out on the sidelines is a position that can often save investors/traders unneccesary frustration and capital. 

Even with the sharp move to the upside our Iron Condor position is still 5% away from the short call strike. The adjustments that we made after our last loss seem to be working well during this volatile market. the increased volatility has allowed us to use an extremely wide range (300 points) and yet we will still make 7.9% if the underying SPX (S&P 500) stays within our chosen range. We will continue taking a more conservative approach with this strategy, choosing wider than normal ranges in an attempt to take 5%-10% out of the market per expiration cycle. Previously, we were using narrower ranges that brought in more premium (capital), but in the process we had to sacrifice our win ratio (probability of success).

Overbought/Oversold for December 10, 2007

S&P (SPY) - 76.5 (overbought)

Russell 2000 (IWM) - 75.1 (overbought)

Dow (DIA) - 79.5 (overbought)

Nasdaq 100 (QQQQ) - 74.7 (overbought)

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Will the recent rally last?

There really isn’t much to write about tonight. The markets held steady today and for the most part finished the day flat.

My how many are quick to jump on the bullish bandwagon. I am a range-bound trader (who also trades market extremes) and for the most part so it really doesn’t matter to me which way the market moves as long as my underlying of choice doesn’t move sharply in one direction.

Sure, the bulls have stepped up over the short-term, but the gap up yesterday put the major indices in a “overbought” state and typically a move like that is faded over the short-term. This could be the exhaustion gap that many traders have awaiting.

Furthermore, in many cases, the initial reaction after the jobs report is often faded, which is exactly what occurred today.

Of course, there are no guarantees in the world of trading(I think we already know that), but the probability of a short-term move (1-3 days) lower certainly look likely from where I stand.

The SPX is up roughly 7% over the last 8 trading days. Is that really sustainable? Did the “Santa Claus” rally come early again this year? Everything hinges on Tuesday when the Fed announces how many basis points they will lower interest rates. Stay tuned!

Have a wonderful weekend!

Overbought/Oversold for December 7, 2007

S&P (SPY) - 72.0 (overbought)

Russell 2000 (IWM) - 70.5 (overbought)

Dow (DIA) - 75.3 (overbought)

Nasdaq 100 (QQQQ) - 72.1 (overbought)

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Late Post or Would That Be Early Post?

I apologize for the late post. I know many of you use the Overbought/Oversold measures on a daily basis so lets get to it.

All of the major indices we follow are back in an overbought state. It will be intersting to see how the market reacts after the jobs report is released this morning. As always I expect to see some whipsaw shortly after the opening bell, but any move upwards will most likely be given back. Of course, there are no guarantees in the world of trading, but given the short-term negative seasonal conditions coupled with overbought status in all of the major indices, (not to mention the upside gap from two days ago that has yet to close) and a short-term reprieve looks probable.

After the bell today I will present the overbought/oversold measures for several more ETFs with options per everyone’s request.

Have a wonderful day! See you this afternoon!

Overbought/Oversold for December 7, 2007

S&P (SPY) - 72.3 (overbought)

Russell 2000 (IWM) - 70.0 (overbought)

Dow (DIA) - 74.1 (overbought)

Nasdaq 100 (QQQQ) - 72.0 (overbought)

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S&P Remains Range Bound

I am still not as sold as everyone else over the move today (although the futures sure look great as I write this). We are still range bound with strong resistance lingering overhead (1490 in the S&P). Until the S&P can make a move above that level and sustain itself there I am not confident in a sharp move higher. Of course all of this speculation will end shortly and no one really knows what is in store for the future. What we can decipher from the market is that nothing has changed. A nice move today, certainly, but we saw something similar to this a few days ago and the gap closed several trading days later.

As I stated in my prior post the market is faced with the following over the short-term:

According to the Stock Trader’s Almanac Thursday and Friday of this week are historically bearish. Only 33.3% and 38.1% of the trading days finished in the black on the S&P.

Not that I use the aforementioned as a sole reason to place a trade. Just food for thought.

Couple the short-term seasonal tendencies with the S&P back near strong resistance at 1490 and I think we could see a pullback over the next few days.

Also, the gap today in the S&P did not close which often weighs heavily on the market over the short-term.

Basically, I think we vacillate around in the 1440-1490 area until the Fed decision Dec.11.

Overbought/Oversold for December 5, 2007

S&P (SPY) - 64.2 (neutral)

Russell 2000 (IWM) - 57.6 (neutral)

Dow (DIA) - 66.8 (neutral)

Nasdaq 100 (QQQQ) - 63.6 (neutral)

We work hard to bring you our latest views, opinions and research on a daily basis. If you are a loyal reader and find our thoughts useful please show us your support by joining our newsletter service. We currently follow 3 stock options strategies in our investment newsletter, the ETF Extremes, SPX Short Iron Condor and SPY Diagonal LEAP.

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Still Range Bound, But For How Long?

The S&P has moved back into the middle of the range and will most likely stay there until the either the payroll report Friday or the Dec. 11 Fed release. Our short-term overbought/oversold measures are moving back near oversold territory, but that doesn’t mean the move lower has ended. There is still room to the downside roughly 1440-1450 which is right at the support levels that I have mentioned in the last few posts. A move to that level and my guess would be that the Bulls will step in with some force. As to whether or not the short-term bounce leads to a “Santa Claus”, well, that is up to Mr. Market to decide.

The move lower has moved the underlying SPX back towards the middle of our 300 point range in the Iron Condor strategy. A comforting feeling indeed. There is nothing better than placing a trade with a huge range and watching it vacillate within the chosen range without coming close to the short strikes. Best of all, we do not have to touch it and yet we will make 7.9% over the four weeks. Not bad, not bad at all.

The wondeful people over at Vix and more agree that now could be the time to get into Iron Condors – Thinking Sideways But Volatile

According to the Stock Trader’s Almanac Thursday and Friday of this week are historically bearish. Only 33.3% and 38.1% of the trading days finished in the black on the S&P.

Overbought/Oversold for December 4, 2007

S&P (SPY) - 51.1 (neutral)

Russell 2000 (IWM) - 42.8 (neutral)

Dow (DIA) - 53.8 (neutral)

Nasdaq 100 (QQQQ) - 48.7 (neutral)

We work hard to bring you our latest views, opinions and research on a daily basis. If you are a loyal reader and find our thoughts useful please show us your support by joining our newsletter service. We currently follow 3 stock options strategies in our investment newsletter, the ETF Extremes, SPX Short Iron Condor and SPY Diagonal LEAP.

If you want to an in-depth, step-by-step look at how we trade our strategies purchase our acclaimed E-Book! With your purchase you will receive Two Free Months of our investment newsletter plus unlimited access to our Insider’s page enabling you to follow our strategies as you learn. What do you have to lose? Join today!

December Iron Condor and Market Outlook

I hope all of you had a wonderful weekend. The Ducks fell to the lowly Beavers Saturday to the dismay of yours truly. A few weeks ago I was calling about rooms for the National Championship.

Anyway, enough of that, lets get down to business. With 17 days left until options expiration,our SPX December Iron Condor position looks promising. Our 300 point range has allowed for an enormous bout of volatility and yet we wil lstill make 7.9% for the expiration period (four weeks) if the underlying SPX expires between 1590 and 1290 on the SPX. Currently SPX would have to rally 8% or decline 12.4% over the next 17 days before our position is in jeopardy of taking a loss. I hate to keep repeating this, but since our last loss and significant changes to the guidelines of Iron Condor strategy the strategy has three successful trades for a total of 25.1%. Essentially, the strategy is completely different than before. Read our SPX Iron Condor post from last week if you wish to find out more.

There really isn’t too much to discuss right now. Last week I stated “..I am still expecting to see the market move lower over that timeframe with a possible retest of the 1440 area. I would not be surprised at all to see the market vacillate around in a range until the December 11 Fed meeting…”.

My sentiment hasn’t changed much. The S&P could vacillate between 1440 – 1490 for quite some time before we the spike outside the range. A break out of the range should be sharp and sustainable. Friday could lead to a move beyond the range as it seems all eyes are on the upcoming payroll report due out Friday. Just one more reason to expect a range bound market over the next trading few days.

I think Kirk agrees. Check out Moody Monday for a nice snapshot of SPX.

Also, check out my post Bearish November Leads to Bullish December. If you haven’t had a chance to read it just click on the link above. I think you will find it well worth the effort. December is one of the strongest months of the year, especially when follwoing a weak November.

Have a great night!

Overbought/Oversold for December 3, 2007

S&P (SPY) - 60.8 (neutral)

Russell 2000 (IWM) - 50.6 (neutral)

Dow (DIA) - 62.3 (overbought)

Nasdaq 100 (QQQQ) - 52.8 (neutral)

We work hard to bring you our latest views, opinions and research on a daily basis. If you are a loyal reader and find our thoughts useful please show us your support by joining our newsletter service. We currently follow 3 stock options strategies in our investment newsletter, the ETF Extremes, SPX Short Iron Condor and SPY Diagonal LEAP.

If you want to an in-depth, step-by-step look at how we trade our strategies purchase our acclaimed E-Book! With your purchase you will receive Two Free Months of our investment newsletter plus unlimited access to our Insider’s page enabling you to follow our strategies as you learn. What do you have to lose? Join today!

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